“Other Insurance” Does Not Turn Potential Indemnity Claim Into Underlying Insurance

Case: In Re: Deepwater Horizon, Cameron Int’l Corp. v. Liberty Ins. Underwriters, Inc., a/k/a Liberty Int’l Underwriters,
2014 U.S. Dist. LEXIS 155043
Federal Eastern District of Louisiana
MDL No. 2:10-md-02179 (10/31/2014)

Appeal: In Re: Deepwater Horizon, Cameron Int’l Corp. v. Liberty Ins. Underwriters, Inc., a/k/a Liberty Int’l Underwriters
Federal Fifth Circuit Court of Appeals
No. 14-31321

In yet another decision resulting from the BP Macondo oil spill, on December 15, 2014, district court Judge Carl J. Barbier entered declaratory judgment in favor of Cameron International Corporation, as well as an award of $50,000,000 plus legal interest at the rate of 5%, accruing since January 30, 2012. All other relief sought by Cameron was denied, with judgment rendered in favor of Cameron’s insurer, Liberty Insurance Underwriters, finding no bad faith and no right to recover penalties or attorneys’ fees in the underlying litigation.

In his written reasons for ruling, Judge Barbier explained the dispute arose from LIU’s refusal to contribute toward the settlement of most of Cameron’s exposure arising from the spill, which exposure had been resolved by Cameron in a settlement reached with BP, through which, in exchange for payment of $250,000,000 and waiver of Cameron’s contractual indemnity rights against Transocean (which might have been passed through to BP), BP agreed to indemnify Cameron for its exposures. All other impacted insurers of Cameron agreed to and did fund their portions, but LIU raised several defenses to doing so. LIU did not contest that the settlement was a “loss” under the policy, or that the underlying limits had been exhausted.

LIU argued the “other insurance” clause of its policy made the policy excess over the potential indemnity to be received from Transocean/BP (as though it was additional underlying insurance) and that the effect of Cameron’s claim to such indemnity was that it must be exhausted or be judicially determined unavailable before LIU’s policy would attach. Judge Barbier found potential indemnity rights were treated differently than underlying insurance by the policy. He noted the policy required Cameron to keep the underlying policies in effect, that if they failed or the policies for whatever reason did not pay, LIU would only be liable as though they existed and would not drop down, and that LIU would only pay “loss” in excess if their limits, which were specifically identified in the policy. In contrast, the “other insurance” provision included none of this. In fact, Cameron was not even required to get any indemnity.

Judge Barbier held “other insurance” issues are to be resolved between the two insurers (or here the insurer and indemnitor), but do not affect the right of the insured to recover under its policy. Judge Barbier held, “To conclude otherwise would mean that having both insurance and a disputed claim for contractual indemnity left Cameron less protected than it would have been had it only had insurance. Such a result would be unconscionable.”

LIU had urged impairment of subrogation rights as a defense, but Judge Barbier noted the settlement documents revealed the settlement had carved out from the release the very claim LIU argued was waived, such that the claim was still available. Additionally, he held LIU had breached the policy by not paying the proceeds when they were due and that had relieved Cameron of any obligation to comply with the policy. He also found Cameron had forfeited its right to subrogation when it breached its obligation to fund a settlement which it had effectively admitted was reasonable.

Cameron had sought to recover its defense costs from LIU, but as an excess carrier and given the language in the policy, there was no duty to defend under the policy and thus this claim failed.

Cameron also claimed a violation of Texas Insurance Code Chapter 541, which provides recovery for triple actual damages plus court costs and attorneys’ fees for unfair claims settlement practices. Judge Barbier held he was constrained by, although he disagreed with, Fifth Circuit precedent, Great American Insurance Company v. AFS/IBX, 612 F. 3d 800, 808 & n. 1 (5th Cir. 2010), in holding there was no viable claim under 541 as Cameron had failed to establish an independent injury from the policy proceeds. He noted, however, that this Fifth Circuit decision was at odds with what otherwise would have been the controlling Texas Supreme Court precedent, Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W. 2d 129, 136 (Tex. 1988), and that as the independent injury requirement arose in an earlier Fifth Circuit case, Parkans Int’l LLC v. Zurich Ins. Co., 299 F. 3d 514, 519 (5th Cir. 2002), where there actually was no coverage, the later Fifth Circuit decision requiring it in a case where coverage existed appeared to be inapposite to Texas law. On this basis, Cameron has appealed, presumably to have the Fifth Circuit reconsider its earlier decision and allow it to pursue 541 penalties. Liberty has cross appealed, presumably to seek reversal of the judgment entered.